home loan finance blog
You do not have to be a passive investor with your pension plan. If you have confidence in your current pension plan managers then you should not change anything. If you would rather take an active role in directing your pension plan, here are the facts regarding using your self-directed pension plan to invest in real estate:
Self-directed pension plans can invest in single-family and multi-unit homes, apartment buildings, co-ops, condominiums, shopping centers, office buildings, warehouses, and land. But there are some restrictions:
1. Neither you, your spouse, nor family members (except for siblings) may have owned the property prior to its purchase.
2. Neither you, your spouse, nor family members (except for siblings) may live in or lease the property while it’s in the plan.
3. You may not personally own property that you intend to purchase with plan funds.
4. You must insure that your intended purchase isn’t a transaction prohibited by the IRS.
5. The property must be purchased for investment purposes only.
6. Your business may not lease or be located in or on any part of the property while it’s in your plan.
You can rollover almost any retirement funds into a self-directed IRA. To find a third party custodian to facilitate converting your existing pension plan into a self-directing IRA, search for the following key words: self-directed pension plans, trust, IRA.
You can use your retirement plan to invest in real estate, but why would you want to?
Real estate has been a pretty good investment during the past fifty years or so. Real estate is not looking like such a good investment these days. There are troubling signs in the housing market. There is a good chance that real estate values will actually decline for the foreseeable future, and may continue a downward spiral for many years to come. As the baby boomers retire in greater numbers and start to draw down their savings it is a virtual certainty that all sectors of the economy will suffer.
There is also a good chance that your existing retirement funds will also take a big hit anyhow. Many retirement funds will be hit hard by declining real estate prices. So the choice is yours to watch passively while your retirement funds shrink, or you take control yourself and choose the investments you think are less likely to lose value.
Single family housing is probably the most risky real estate investment to make now. Commercial property is less likely to lose value. Unimproved raw land and farm land is even less likely to lose value. However, if the economy of the whole country goes “south” then your pension plan is likely to take a very big hit, and you may well end up with nothing but worthless paper. As they say about land, they are not making any more of it. Land is tangible. Paper assets, including cash, can become worthless.
There is an alternative. Farm land and raw undeveloped land in Brazil is not likely to lose value because it is undervalued now. Brazilian agricultural products are in demand worldwide. Brazil is the world’s leading producer of ethanol, and the demand for alternative energy is growing worldwide. All these factors are likely to increase the value of Brazilian farm and unimproved land. You can use your self-directed IRA to buy Brazilian real estate.